United nations of tax incentives

Part I: Theoretical Background
benefits and the portion that relates to other pro-investor reforms. With 
these qualifications, it is sometimes easy to conclude that a particular tax 
incentive scheme has resulted in little new investment, with a substantial 
cost to the government. In other cases, however, tax incentives have 
clearly played an important role in attracting new investment that 
contributed to substantial increases in growth and development.
One place to start thinking about tax incentives is to consider 
what role governments should play in encouraging growth and 
development. Governments have many social and economic objectives 
and a variety of tools to achieve those objectives.
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Tax policy is just one 
option, and taxes are just one part of a complex decision as to where 
to make new domestic investment or commit foreign investment. 
Governments have a greater role than to focus on relative effective 
tax burdens. Governments need to consider their role in improving 
the entire investment climate to encourage new domestic and foreign 
investment, rather than simply doling out tax benefits. Thus, while 
much of the focus on tax incentives is on the taxes imposed by 
government, it is also important to examine the government spending 
side of the equation. Investors, both domestic and foreign, benefit 
from government expenditures. A comparison of relative tax burdens 
requires consideration of relative benefits from government services.
II . 
Definition of tax incentives
At one level, tax incentives are easy to identify. They are those special 
provisions that allow for exclusions, credits, preferential tax rates 
or deferral of tax liability. Tax incentives can take many forms: tax 
holidays for a limited duration, current deductibility for certain types 
of expenditures or reduced import tariffs or customs duties. At another 
level, it can be difficult to distinguish between provisions considered